Saturday, December 3, 2016

Picking nits

One paragraph, two nits.

Bezemer & Hudson:
Households do not receive incomes from the houses they live in. The value of the “services” their homes provide does not increase simply because house prices rise ...

The value I get by living in my home surely must be measured in terms of the replacement cost of the home. Surely I would not get the same value, living in a cardboard box under a bridge. Oh, and putting the word services in quotes as they do, to belittle it, does not make their case stronger.

As a blogger who tries to write every day about the economy, I can tell you this: If the argument is weak, don't use it. Find a better argument, or find a better analysis.

The financial sector does not produce goods or even “real” wealth. And to the extent that it produces services, much of this serves to redirect revenues to rentiers, not to generate wages and profits.

B&H seem to see "rentiers" as a class or caste of society. In the article they say "An economy based increasingly on rent extraction by the few and debt buildup by the many is, in essence, the feudal model". Lords and serfs. The rentiers and the rest of us.

Well maybe that's how it is today. But it's not how the problem started. And it's not entirely like that, even now. Hey, I got my nine cents interest on my savings account. That makes me a nine-cent rentier.

The thing is, it's not that some people are rentiers and others are laborers. That's not it. It's that there are different kinds of income. And most, or many, or at least some people receive a mix of different kinds of income. Adam Smith defined wages, and profit, and rent. These are categories of income, not kinds of people.

In the dog-eat-dog, decline-of-civilization world we live in, we take the categories of income and use them to define people. That's wrong. And it doesn't help.

Adam Smith wrote:
When those three different sorts of revenue belong to different persons, they are readily distinguished; but when they belong to the same they are sometimes confounded with one another, at least in common language.
A gardener who cultivates his own garden with his own hands, unites in his own person the three different characters, of landlord, farmer, and labourer. His produce, therefore, should pay him the rent of the first, the profit of the second, and the wages of the third. The whole, however, is commonly considered as the earnings of his labour. Both rent and profit are, in this case, confounded with wages.

I read somebody one time who wrote that Smith's thinking was "class-based". Bullshit. Adam Smith's thinking was cost-based. It is we, misinterpreting Smith, who are the class-based thinkers.

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